Bernard Hickey: Wave-and-pay threatens eftpos

New Zealand's isolation from the rest of the world means we can evolve species that are perfectly adapted to our environment - even when it comes to business.

One of the least-heralded and unusual local adaptations is our eftpos system, which launched in 1984 and handles 75 per cent of all electronic transactions.

New Zealanders now take it for granted they can walk to the dairy with an eftpos card and pay for a bottle of milk without any surcharge.

Eftpos is admired throughout the world. It means shoppers, retailers and banks don't have to hold huge lumps of money.

That means we're more likely to pay our GST and the cost of doing business isn't weighed down by the costs of handling cash or paying a clip of the ticket to an overseas payments system network.

Some think these cost savings could be $500 million a year.

But this golden era may be about to end.

Eftpos now faces the evolutionary equivalent of the arrival of the rat and stoat as new waves of mobile and "contactless" technology wash through our shopping centres.

Over the past two years, Visa, MasterCard and the big banks have ramped up rollouts of payWave and PayPass contactless credit and debit cards to customers. At the same time, big retail and petrol station chains have "wave and pay" terminals.

By the end of March, more than 15,000 such payment terminals had been set up, 10 per cent of the nation's total, and contactless payment volumes doubled to more than two million from a million as recently as last August.

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The biggest retailers can afford to absorb the extra fees for the payments made using Visa and and MasterCard, and also to negotiate bulk deals with the banks. Smaller retailers such as dairies and cafes aren't so lucky. Either they absorb the 2 per cent-plus fees being charged for using these credit cards, or charge their customers.

For now, this is not a major issue because the volumes going through the card schemes rather than eftpos is still under 30 per cent. But New Zealand is getting closer to that tipping point where credit and debit card use becomes more dominant. The big drawback of contactless, however, is that the technology is owned by Visa and MasterCard and they won't allow it to be used for eftpos payments.

Regular visitors to Australia will know what a landscape dominated by those card schemes looks like. Surcharges are endemic and most people pay for smaller items with cash. Australia is so desperate to emulate New Zealand's much cheaper eftpos system that the Reserve Bank of Australia is trying to build one from scratch.

Meanwhile, New Zealand's still eftpos-dominated landscape faces the arrival of mobile phone wallets, which could hasten the demise of eftpos, or prove another of those moments, like in the late 1980s, when we chose to find our own solution.

These would be phones with apps that contain all details of payment and loyalty cards and could be simply waved at a terminal.

TSM is a body that could effectively repeat the history of eftpos and create an industry standard that allows New Zealand to go it alone again.

It is a combination of Paymark, the big four banks' group that already runs the eftpos system, and the three mobile phone companies - Telecom, Vodafone and 2degrees.

It is building a mobile wallet system that could include apps for payment systems such as eftpos, Visa and MasterCard, and for transport cards such as Snapper or Hop. It could even include loyalty schemes and cafe cards. It hopes to launch later this year.

If the TSM alliance can include eftpos in its mobile wallet and get collective action from the banks and mobile phone companies, eftpos has a chance to survive and thrive.

The end result matters an awful lot for NZ Inc. A landscape dominated by Visa and MasterCard payments could add a regular 2 per cent to every electronic transaction and cost us hundreds of millions dollars annually. It would revive the incentives for a more cash-driven and shadowy economy.

A landscape without eftpos would also encourage the use of credit.

It's no accident that economies without eftpos have heavier use of credit cards and a bigger consumer debt. For the sake of NZ Inc, we need to keep our mobile wallets as "Kiwias".

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Bernard Hickey is the publisher of Hive News, a Wellington-based political and economic subscription news email service. He also writes for Interest.co.nz and appears regularly on Radio New Zealand, Radio Live, TVNZ and TV3. He has been a financial journalist for 25 years, having worked for Reuters, the Financial Times Group and Fairfax Media.